Pandemic-Emptied Hotels Could Become Affordable Housing, City Officials Suggest

Yves here. This is one of the few potentially positive developments I have heard of coming out of the coronacrisis. When I first came to the city, there was a lot less homelessness, in large measure due to the existence of single room occupancy hotels. It’s important to remember that most homeless are intermittently homeless: they have couch-crashing or other ad-hoc housing that had fallen through. SROs provided more stable short-term (and for some, longer-term) arrangements.

Those SROs over time were converted to either hotels or residential housing. And given that developers have been interested only in building luxury or super-luxury housing, converting some hotels back to apartments is a logical way to create more middle class housing in urban areas. And it’s a way to swing the pendulum back from gentrification gone too far. I liked Manhattan much better when it was mixed income and gritty rather than shiny and soulless.

By Yoav Gonen. Originally published by THE CITY on June 25, 2020

A Jamaica, Queens shelter hotel where people were being isolated during the coronavirus outbreak, April 2, 2020. Ben Fractenberg/THE CITY

City officials are looking to capitalize on a distressed tourism industry by converting commercial hotels into affordable housing — including creating single room occupancy units known as SROs.

The exploration of cheaper alternatives for affordable housing and supportive housing — offering health care and social services for people with mental illness or substance abuse disorders — comes as the city struggles to overcome a fiscal crisis prompted by the coronavirus pandemic.

The effort, which also comes as thousands of homeless people are staying in hotels, highlights just how hard a near-halt in business travel and tourism is slamming New York City.

“Unfortunately, we’re seeing a tremendous hit to our hotels because of the reduction in tourism, because of the lack of travel — and hopefully most of that will come back. But some of it may not,” Vicki Been, deputy mayor for housing and economic development, said this week during an online roundtable on economic development hosted by the Real Estate Board of New York and the law firm Greenberg Traurig.

Deputy Mayor for Housing and Economic Development Vicki Been speaks during a City Hall coronavirus press conference, March 12, 2020. Ben Fractenberg/THE CITY

“So we’ve been looking hard at — are there hotels that we could acquire to turn into supportive housing rather than having to build from ground up?” she added. “We’re looking both at, are there assets that we own that we can make available to affordable housing or other needs — and are there private market buildings that we could acquire to convert into affordable housing at a cheaper cost.”

Department of Housing Preservation and Development Commissioner Louise Carroll, who also participated in the event, said hotels are also under consideration for a shared housing model — which includes SRO-like units that have common areas for residents.

The agency has been testing shared and co-living spaces as affordable housing since 2018.

“Maybe hotels are good for rehab in that way,” Carroll said of SROs.

The number of SRO units in the city has decreased from a high of more than 200,000 in the 1950s to as few as 30,000 today, according to supportive housing advocates.

The purge began when city officials deemed SROs to be substandard housing — and made it illegal to build new units beginning in the 1960s.

Eager Sellers

The hotel conversions could offer a cost-effective way to create affordable housing on a large scale, say the supportive housing developers and operators, much less expensively than building from the ground up.

More than $1 billion in planned spending on affordable housing for the fiscal year that ends Tuesday and the one that begins July 1 would be delayed by two years under Mayor Bill de Blasio’s proposed capital budget, the Independent Budget Office reported Monday.

That budget is in its final days of negotiation with the City Council.

De Blasio has set a goal of building and preserving 300,000 units of affordable housing by 2026. The IBO report found that through March, the city had financed just over 164,000 units — of which 70% were preserved through refinancing and upgrades rather than new construction.

On the tourism side, the latest data from the hospitality analyst group STR found that city hotel occupancy rates were down by 47% in May compared to a year prior — to an occupancy rate of 47.2%. Revenues were down 82.6% compared to the same month last year, the data shows, to about $166 million.

About 13,000 homeless people — or nearly one-quarter of the city’s total homeless population — are among those staying at commercial hotels, according to department of homeless services officials.

The city has been isolating people during the coronavirus outbreak in a Greenwood Heights, Brooklyn, hotel, May 26, 2020. Ben Fractenberg/THE CITY

Both the occupancy rate and revenue were slight improvements over April’s numbers, the data shows. But the days when the city drew 60 million tourists annually are gone.

Leaders in the hotel and corporate sectors said they see the city’s explorations as an accurate reflection of conditions on the ground for the foreseeable future.

Vijay Dandapani, CEO of the Hotel Association of New York City, said the financial realities for some hotel owners will align with the city’s interests.

“In this particularly stressful time with virtually no revenues, we expect there will be a high degree of interest from some owners,” said Dandapani. “It is pretty much a certainty that the hotel industry won’t be able to recover in any meaningful way till at least late 2023, and more likely early 2024.”

As many as 20% of the city’s more than 125,000 hotel rooms may not reopen, The Wall Street Journal recently reported.

Kathryn Wylde, CEO of the Partnership for New York City, said hotels had been overbuilt before the coronavirus crisis, and that soaring real estate costs had made it difficult to develop affordable housing.

“We support the idea of trying to fund public use for distressed assets,” she said. “To the extent the pandemic creates some opportunities to acquire properties cheaply and repurpose them to meet community needs, that would be one of few good outcomes of this horrible crisis.”

Housing at Half the Cost

When supportive housing first took off as a model starting in the 1970s, conversions of aging hotel buildings were common. Former hotels that remain residences today include the Prince George in Flatiron and Muhlenberg Residence in downtown Brooklyn.

If the city moves forward now, it wouldn’t be the first conversion by the de Blasio administration of a former hotel site into affordable and supportive housing.

In 2018, the supportive housing nonprofit Breaking Ground purchased a former residential hotel on Sands Street that was part of a Jehovah’s Witnesses complex in Dumbo, Brooklyn.

With a $157 million loan from HPD, the site is now poised to serve as 200 units of affordable housing and 300 units of supportive housing, according to Breaking Ground’s CEO, Brenda Rosen.

Rosen said an SRO model would be particularly well-suited for distressed hotels in Manhattan, which can be converted into supportive housing for as little as $250,000 per unit — half the cost of new construction.

“There are thousands of hotel rooms being used as shelter right now, and the question is, does it make sense to think about these hotels as some sort of permanent supportive housing and would it make sense in terms of structure and time and cost?” said Rosen. “It really could be a huge benefit to the city, especially at a time of fiscal constraint.”

This story was originally published by THE CITY, an independent, nonprofit news organization dedicated to hard-hitting reporting that serves the people of New York.

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  1. The Rev Kev

    I know that this is quite a good idea but would not some companies like to keep some empty hotels on their books so that they could write off some money off their taxes? In a nearby city to me, there was a mall owned by some company in South Korea that never ran at a profit due to high rents and the like. It was reckoned that they did this for taxation reasons but it put the center of that city behind the eight-ball for decades. Eventually the city built another complex across the river for all those shops to go to.

    1. rd

      Based on some of the property tax battles in our area, they local governments will be able to take some over for the tax lien when the tax bill isn’t paid.

    2. HotFlash

      Most yes, rd, esp if property taxes and/or income taxes are raised. As I believe they should be in many (not all) cases, but on commercial properties most probably.

      If a, say, hedge fund would turn over a down-graded, non-performing hotel (due to corona, lack of tourism, yada) to municipality codes, lack of staff, whatever, wouldn’t that be a bonus for municipal govts who have to (mostly) foot the bill for ‘homeless’, low income people?

      Seems like a good fix, assuming there is a will

  2. PlutoniumKun

    I’m a little dubious about this idea. Much depends on the design and layout of the building. There is a long history of hotels being used for emergency social housing and it usually doesn’t end well – a typical hotel room is too small for anyone but a single person for long term residence and they often don’t have the physical room for kitchens. The modern construction methods for hotels can make them very difficult to redesign internally, so apparently ‘simple’ things like turning two hotels rooms into a single unit can end up being very expensive. They also lack things that you would take for granted in a residential building – like areas of informal outdoor place suitable for small children to play. I think only a minority of purpose built hotels are really suitable for longer term accommodation, even with significant alteration.

    What may have a lot more potential are ‘aparthotels’ or similar, which will already have cooking and other shared facilities. I’ve no doubt the developers of those might be very eager to sell on as residential uses. But again, many of these are substandard in terms of most permanent residential requirements, and it may not necessarily be easy to bring them up to standard. For one thing, many will have been built with substandard noise insulation.

    A simpler idea would be to crack down hard on AirBnB use, and so displace more tourists and travellers to properly built and licensed hotels, and so force those short term lets onto the long term let market. This is already happening anyway (I’ve heard lots of anecdotes of AirBnB landlords frantically looking for tenants), but it could be accellarated by appropriate local changes to zoning or other codes in order to make short term letting of residential properties illegal.

    1. jr

      A construction supervisor I chat with sometimes over socially distanced coffees in the morning works at an semi-enormous high end apartment building a few blocks north from our spot. I have been looking for a kitchen to setup a small video studio in and I mentioned that one time; he told me he has a building full of them and that I should talk to his boss. All the money fled the city to give one another, and any one else they bumped into, the Bug, over Martinis in the Hamptons no doubt. If hotel rooms are problematic, maybe the empty towers of apartments and condos would do it. Lots of construction work as well, refitting etc.

      I think it could work. Hold one, lemme get D’”Blah”-io on his gender neutral phone…..

  3. Michael Fiorillo

    Many of the SROs that lined the Upper West Side of Manhattan and elsewhere had been converted from higher-end uses during and after the Depression, just as many row houses were converted into apartments and lodging houses. Now, with the possible conversion of over-abundant hotel rooms to permanent housing for the homeless, the cycle returns…

    Live long enough, and pay attention, and you observe similar variations on similar themes, again and again.

    As a lifelong New Yorker, I hope these plans succeed. The city faces unfathomably deep consequences from the pandemic and resulting economic crises, and Depression conditions, where housing stood empty among millions of homeless, and food was thrown away amid widespread hunger, must be fought.

    1. Jesper

      That was my impression as well, more of a bailout of the hotel-owners than a help to the homeless. Hotel-owners are more likely to have the ear of the government than the homeless. Possibly I misunderstood.

  4. Noel Nospamington

    This is a bad idea, since after we have a COVID-19 vaccine, need for hotels/motels for business and tourism is excepted to return.

    Instead what governments really need to do is outright completely and permanently ban Airbnb and other short term rentals in residential units. Since these have been shown to greatly negatively impact housing availability and affordability, violate zoning laws, violate insurance policies, and do not meet the safety, cleaning, and code of conduct (such as anti-discrimination) standards of legitimate hotels/motels.

    Airbnb and other short term rentals are a cancer in society which only have been allowed to exist because most politicians are too stupid to figure out that putting something illegal on the Internet as a tech business does not make it legitimate.

    What’s next? Maybe the next big tech thing is Airbar (or iDrunk), where by people are run commercial bars out of their residential homes via a mobile app which helps you find locations and handles payment, ignoring local zoning laws, liquor licencing laws, and even fire marshal regulations.

    1. kevin

      To be fare, hotels (and really any non-residential building) also contributes to negative housing availability since they take up space that could otherwise go towards housing. But good points on following the laws and codes that are written for these industries.

    2. Yves Smith Post author

      I don’t agree. Companies are getting accompanied to Zoom. I know of a top tax attorney who goes to 2-6 conferences a month, often as a speaker. He reports that people are realizing Zoom is way more efficient. 6 more month and the new habits will be embedded. There will be a permanent reduction in business travel, even before getting into the deflationary shock and business failures also leading to long-term belt tightening.

      And you are assuming a vaccine will be effective. If Covid-19 antibodies are short-lived, and the evidence so far is coming in along those lines, vaccines won’t be effective.

      1. JBird4049

        Then could the COVID-19 vaccine be a yearly, biannual, triannual, or even a quadannual event similar to the flu shot? That doesn’t seem undoable although it would be annoying, but not breathing is even more annoying. Also, it would be nice to actually see my mom again.

  5. Glen

    Finally ventured south to Portland, OR to see our daughter. We are somewhat worried that things will get worse, and travel will be restricted.

    I’ll make a few anecdotal observations. There are homeless people everywhere. I would expect that with so many unemployed, and such a lackluster effort by our government to support it’s citizens that we are going to see more, much more.

    We obviously need people to help clean up everything to control CV. Can we not house, and feed people, and give them some work that must be done?

  6. Joe Well

    I know of at least one real-world example from years ago where a hotel was converted into student dormitories. Students, even 30-something graduate students, would seem to be the best candidates for this kind of housing.

    This also got around zoning issues and community opposition to single-room-occupancy and units without cooking facilities. Everyone knows what a dorm is and if it’s in a commercial district away from residents being bothered by student parties, win-win.

    Student housing, including graduate student housing, is a big piece of the puzzle, because then students are taken off the local housing market, freeing up units for others.

    1. Intergalactic Joe

      I’ve seen this first-hand at a US university very recently; running low on student housing, they leased an entire wing of a nearby hotel and used it as an auxiliary dormitory. Since it was a hotel, there were no cooking facilities in the units, which is fine for students with an out-of-building mess hall to go to, but I’m not sure how that scales to the general public.

      1. chuck roast

        If the students don’t show up this fall we can expect to see “student housing” offered to non-students. If they haven’t $**t-canned all the useless deans, and they can keep at least one of them off the golf course, they can use him to run the leasing program. Many of this new university housing comes complete with a pricey monthly nut to privatizers and their REIT’s. Better get crackin’.

  7. Stephanie

    Re: the lack of kitchen space in hotel rooms, would a boarding-house model in which residents receive room and board be viable/practical? I’m assuming many hotels have a commercial kitchen or space that could be converted to a commercial kitchen.

    1. Joe Well

      In the student dorm, they converted the main hotel restaurant into a dining hall.

      For single people, cooking for yourself is much less attractive (cost, time).

  8. Iowan X

    Stephanie, I think this is right, but you’d want a World Central Kitchen type operation to get it set up and get the food operation transferred to a local nonprofit. I think that would work.

  9. juno mas

    The needs of the homeless vary quite a bit. Some are families with school age children. Some are elderly women on limited SS that can no longer pay the increasing rent. Some are mentally incapable of living in a open, unstructured environment. Some are full-on angry, shouting at demons through the night. Developing a housing plan for this diverse group is a challenge of immense proportions.

    Many of the homeless are not capable of returning to the workforce (without extensive supervision). Mitigating homelessness is going to take a Marshall Plan.

    1. GramSci

      Many of those of whom you speak are the old homeless. Many of the new homeless have university degrees.

      1. juno mas

        Or are attending college. Which constricts work hours and the ability to pay rent.

        The post discusses the opportunity to use some hotels as dorms. Some of the issues that impact the older homeless seem to impact the younger homeless, too. My community college won’t let students sleep on campus in their cars (temporarily) while they gather a group of roommates. even though food service, shower facilities are readily accessible. The student population is actually too large for the available housing so rents go higher and higher (for everyone).

        1. JBird4049

          And the longer a person is homeless the more likely that their health both physical and mental will decline; having stable housing reverses that and the longer one has it the more their health tends to improve. Just being homeless can create mental illness.

  10. Knot Galt

    Housing has become a financial tool and investment for the wealthy and well off. To effectively solve the homelessness issue, we need be looking at housing more than just a monetary investment.

    Housing needs to become about shelter once again. Housing needs to be about investing in community and supporting the concept of Family.

      1. JBird4049

        Like Vienna’s “public” housing? They have excellent and affordable housing for all levels of society with the well off usually wanting to live in them because of the excellent and affordability of the housing even though the housing is all mixed. Privately built under government standards since the 1920s. Yet again something that another country can do, but somehow our exceptional country can not do. Fudge.

  11. Jeremy Grimm

    Color me skeptical, extremely skeptical.

    My sister is a state social worker in middle Upstate New York. Many/most of the hotels and motels in her area had been “converted” long before Corona — not sure what “converted” means exactly in any given case — to house the numerous homeless and destitute in her area. My bad memory of hearsay from my sister recalls housing “converted” in tenant only [no kitchenettes or other nice things]. And my bad memory recalls New York State paying the hotel and motel owners very very well for some pretty shabby motels and hotels … something approaching double what it might have cost to hold the homeless in a state prison.

    The area where my sister lives is alright as a place to live — much better than most central city areas — but it isn’t exactly a tourist Mecca. The local hotels and motels had a lot of ups and downs in their seasons [sorry no links or statistics just anecdote from past visits to my sister]. They are filled during deer hunting and other hunting seasons but sparsely filled most of the year. Suspicious, cynical, and skeptical as I am — the amounts the state of New York was paying hotel and motel owners for some far from prime accommodations for the poor — left me thinking there was something a little fishy about the whole deal.

    Now that NYC wants to implement something sorta like that deal — a deal that in my view seemed designed to help Upstate New York hotel and motel owners — I remain underwhelmed. If NYC and New York State can help their poor homeless as well as the CARES Act provided for the Populace — a not unreasonable expectation — I am much less than underwhelmed.

    Considered from another direction, the plans to ‘convert’ NYC hotels and motels to house the homeless seem a little premature. How many tenants will be joining the homeless in the next months? How many apartments that already have a kitchenette will sit vacant and for how long? New York State needs to carefully spread its largess. Both hotel and motel owners and landlords may need help.

    1. JBird4049

      Corruption. The Neoliberal Regime and the Professional Managerial Class has helped break everything in government, business, religion, and anything else in our society so like marrow from a shattered bone more money can be extracted.

  12. polar donkey

    A person I know who works at a hotel said hotel industry is concerned about air conditioning systems that have been shut off for months. Worried about Legionnaire’s.

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